Correlation Between Tax-managed and Vela Large

Can any of the company-specific risk be diversified away by investing in both Tax-managed and Vela Large at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Tax-managed and Vela Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tax Managed Large Cap and Vela Large Cap, you can compare the effects of market volatilities on Tax-managed and Vela Large and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Tax-managed with a short position of Vela Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Vela Large.

Diversification Opportunities for Tax-managed and Vela Large

0.64

Correlation Coefficient

Tax-managed  Vela Large

Poor diversification

The 3 months correlation between Tax-managed and Vela is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Vela Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela Large Cap and Tax-managed is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Tax Managed Large Cap are associated (or correlated) with Vela Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela Large Cap has no effect on the direction of Tax-managed i.e., Tax-managed and Vela Large go up and down completely randomly.

Pair Corralation between Tax-managed and Vela Large

Assuming the 90 days horizon Tax Managed Large Cap is expected to under-perform the Vela Large. In addition to that, Tax-managed is 1.89 times more volatile than Vela Large Cap. It trades about -0.11 of its total potential returns per unit of risk. Vela Large Cap is currently generating about -0.08 per unit of volatility. If you would invest  1,715  in Vela Large Cap on December 2, 2024 and sell it today you would lose (12.00) from holding Vela Large Cap or give up 0.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Tax Managed Large Cap  vs.  Vela Large Cap

Tax Managed Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Managed Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vela Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vela Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Tax-managed and Vela Large

The main advantage of trading using opposite Tax-managed and Vela Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed position performs unexpectedly, Vela Large can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vela Large will offset losses from the drop in Vela Large's long position.

The idea behind Tax Managed Large Cap and Vela Large Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.